The closely watched and anticipated tax package for 2021 was finally published exactly on New Year’s Eve 2020, literally “at the eleventh hour”, in the Collection of Laws under No. 609/2020. The amendment (with a few exceptions) becomes effective on 1 January 2021 as declared. The question is, however, whether the Chamber of Deputies should not have voted on the bill again when the President returned it unsigned. But this is yet to be confirmed by a potential review in the Constitutional Court.
The major changes in income tax effected by the amendment are described below.
Changes Applicable to Employment
The amendment abolishes the concept of the “super-gross wage”, which has been in place for a few years and increased the tax base for income from employment by a compulsory insurance premium paid by the employer. The solidarity tax surcharge is abolished as well. Therefore, the original method for calculating tax from the tax base, i.e. directly from gross income, is reinstated. As a result of that, many employees, especially those in higher income categories, will be better off. However, the impact on groups with really high incomes is not so clear as progressive taxation is reintroduced, with the 23% tax rate applying to amounts exceeding four times the average monthly wage (more than CZK 141,764 per month). Nevertheless, this higher rate will be applied to the total tax base, which means that, unlike the solidarity tax surcharge, it will have a negative impact on, for example, taxpayers generating rental income or income from capital assets.
Moreover, the amendment increases the tax relief by CZK 3,000 to CZK 27,840 per year starting on 1 January 2021 and CZK 30,840 starting on 1 January 2022, which is positive for all taxpayers.
From January 2021, in addition to meal vouchers, employers will also be able to provide employees with a meal allowance in cash in the form of a “meal voucher lump sum”, which for employees will be exempt from tax (in 2021) up to the amount to CZK 75.60 per day.
Significant Changes Applicable to Assets
The amendment also permanently increases the limit for tangible fixed assets for the purposes of the Income Tax Act and the limit for their technical improvement from CZK 40,000 to CZK 80,000. Furthermore, the entire category of intangible assets is repealed in the Income Tax Act. It will now be possible to claim expenses associated with the acquisition of intangible fixed assets in the same manner as in accounting. Within the first and second depreciation groups, it will be possible (but not obligatory) to use extraordinary depreciation for assets acquired between 1 January 2020 and 31 December 2021, as it was possible in 2008 and 2009. There will therefore be the possibility of depreciating assets in the first depreciation group evenly for 12 months instead of three years and assets in the second depreciation group for 24 months. For the aforementioned changes in assets, it holds that a more favourable method may be selected for assets already put into use from 1 January 2020 (retrospectively), i.e. it may involve assets other than those put into use after the effective date of the amendment (1 January 2021).
Changes in the Reporting of Income Paid Abroad
Tax-exempt income or income not subject to taxation in the Czech Republic pursuant to an international agreement will be reported yearly instead of monthly until 31 January of the immediately following year. At the same time, the limit for reporting tax-exempt income or income not subject to taxation will increase from CZK 100,000 to CZK 300,000/calendar month/type of income/taxpayer. Please note that this change does not affect the reporting of income subject to withholding tax, which will continue to be reported within the time limit for tax payment.
Changes in the Provision of Gratuitous Non-Monetary Contributions
Expenditure incurred on gratuitous non-monetary contributions provided between 1 March 2020 and 31 December 2020 in connection with the occurrence of SARS-CoV-2 for humanitarian and similar purposes stipulated by law may be tax-deductible in the period in which it was incurred if the taxpayer decides so and does not report it as a deductible item at the same time.
In conclusion, we would like to note that the original proposal to tighten the exemption for the sale of securities by introducing a limit of CZK 20 million was not passed by the Senate. Therefore, the three-year time test still applies without limitations.
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